3 Most Important Steps in Selling a Business

Business finances

There are three serious steps you have to consider before you set out to sell your business.

(1) The first thing to do is to get a business appraiser. Business appraisal is to get a business valuation, where the economic worth of your business, professional practices and value of all your business assets is determined. The appraiser will use various methods to conclude a final value for your business, on the basis of a variety of parameters. It will also provide an arm’s-length valuation that the two parties in the deal with agree upon.

Now, you may want to select a business appraiser who has credentials issued from a national or international certification organization. You should interview a few of them before you finalize one.

The business appraiser would finally utilize all you business data, and arrive to what is known as the “fair market value”, for your business. This whole process will help you understand how you can raise the value of your business and what necessary steps you could take before you officially engage with a broker.

(2) The appraisal process will involve disclosure of financials of your business. So to protect your business, both parties involved will be required to sign a non-disclosure agreement. This is to avoid any potential threats, blackmails or leaks that may affect the seller’s business if the deal is not followed through or the buyer steps out of the sale upon learning some business secret. This document is necessary for both the seller and the buyer, and it is obligatory for both parties to abide by the terms and conditions.

(3) The financial disclosure has to be carefully drafted by the buyer. A good business owner should be writing off a variety of expenses particular to their family needs or tax strategies.

The objection of the whole disclosure process is to get a clear picture of the profitability of the business. Only after this the buyer and seller, along with the business appraiser will be able to go through the entire financials, assets and liabilities to come to a concluding valuation.

Here, another interesting equation comes into play: EBITDA is an equation and stands for: Earnings Before Interest, Taxes, Depreciation and Amortization

What will increase the value of EBITDA? The business owner’s taxes, rental expenses subtracting the market rates, owner’s vacations expenses, tax strategies that accrue to the owner’s personal lifestyle and employees who are family members.

Once the “normalized value” has been establish, both the parties involved in the dealership may start with the various evaluation methods to arrive to the final asking price.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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